GAO: Most companies pay no taxes.

The GAO has found that two thirds of all U.S. corporations pay no income tax. I’ve started and run three corporations, and none paid income tax. Why? Because they were all S-corps, so the shareholders paid the income taxes. I’d like to know if this study took that into account; CNN’s article doesn’t say.

Published by Waldo Jaquith

Waldo Jaquith (JAKE-with) is an open government technologist who lives near Char­lottes­­ville, VA, USA. more »

4 replies on “GAO: Most companies pay no taxes.”

  1. From the article:

    Generally, many small firms, because they do not have shareholders, are able to shift corporate income to individual income.

    That has got to be the dumbest thing I’ve ever read. By definition, corporations have shareholders (unless they are non-stock, a form that is primarily used for non-profit entities).

    But it gets worse:

    The study was requested by Sens. Byron Dorgan, D-N.D, and Carl Levin, D-Mich., in an attempt to determine if corporations are abusing so-called transfer prices.
    The GAO study did not attempt to determine if companies were abusing transfer prices

    So why did they do the study?

    Dumb and dumber, take your pick on who is whom.

  2. Sounds like they were being a little loose with the company/corporation terminology in the story, as they shift several times between the words.

    I would bet many of those small firms are LLCs (Limited Liability Companies) and do not have shareholders. I should know since I have one myself. My income earned through this corporation is reported on my individual tax return.

  3. Waldo, Andrew: that was my take on this too. I’ve also owned an S Corp., and of course it never paid any corporate income taxes: all profit/loss passed through to my personal income taxes.

    This article appears to be pure sensationalism: “Oh, no, lots of companies don’t pay taxes–we need to do something!”

    When you account for the large number of companies that a) are small operations and pass their income through to owners’ personal taxes, or b) simply lose money and don’t have profits to tax, IMO the sensationalism starts becoming transparent.

    Rather disingenuously, the article quotes all sorts of impressively large dollar figures, figures like assets, sales, and revenues in the trillions. No mention *anywhere* of *profits*! (GM has a huge asset line on its balance sheet for its manufacturing facilities, and its sales/revenue figures are still very high. But those aren’t the figures that count for income taxes. From an income perspective, GM is losing its butt!)

  4. LLCs are a hybrid entity and can make elections to be taxed different ways. Single member LLCs can elect to be taxed as a sole proprietorship or a corporation. Multiple members can be taxed as a partnership or a corporation. If an LLC elects to be taxed as a corporation, the members are essentially considered shareholders. Probably a wee bit more information than the writer of the article knew ;)

    And, of course, no mention of profits. That would spoil the story, right?

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